Offset Mortgages -- the Numbers

andrewd41

Bianchiblue wrote: »

Hi all,

my circumstances are - on the mortgage I owe £64K currently pay 2.59% and have 14 years to go. I have savings of £15K and am due to receive inheritence of £35k

I am anxious that i use the £50K well. My inital thought was to make a huge mortgage overpayment, but now i thinking about an offset mortgage instead, as i don't want to blow the 'rainy day' fund. I have no problem meeting my current mortgage comitments. However I don't fully understand offset mortgages.

with the offset mortgage is it a case that in addition to making the monthly repayments, the interest gained on the savings would effectivley be used in a similar way to making a mortgage overpayment?

Based on the figures I have quoted would I fair well an offset mortgage?

Any advise is appreciated, you can probably tell i am a little confussed.

I am in a similar position. Asked the same question on here a few months ago, as we are now fully offset.

I have decided to keep paying monthly into the mortgage - drawing out the corresponding amount from my savings and doing with it what I want to each month. At the moment I am topping up ISA contributions.

Since becoming fully offset, we have saved approx £5000 in interest. So I am fairly happy with that

8Sefton

Has been really interesting reading the forum on offsetting.

I'm currently in this position:

Have a fixed rate mortgage with £70k left to pay - payments currently £290 a month - this expires in December.

I have £10k savings and am hoping to have a further £50k from a relative in the next 6 months. So total savings of £60k. So I have been looking at moving to an offset mortgage.

So my interest payments should fall dramatically - the question I now have is, say I am able to save up the 'missing' £10k and therefore have saved the full amount....

Am I better off keeping the savings and continuing to pay off the mortgage - with 0 interest or paying the mortgage off in total and start saving from 0??

Any help?

getmore4less

Keep the mortgage/savings unless you may need benifits and it would impact that.

liquidity flexability and cheap borrowing on tap and it costs nothing.

eldaniel

As above. If you have really good deal, never pay off your mortgage completely as you canthwn always redraw some money from it, whenever you wish. That is what I am planning to do. When I get down my mortgage to 10k I will redraw all I paid in and use it as a deposit for a next property

8Sefton

eldaniel wrote: »

As above. If you have really good deal, never pay off your mortgage completely as you canthwn always redraw some money from it, whenever you wish. That is what I am planning to do. When I get down my mortgage to 10k I will redraw all I paid in and use it as a deposit for a next property

So... First job is to get your interest down so you're not paying anything - then concentrate on getting the mortgage reduced. Then once it is built up to a hefty amount you can pull money out of the mortgage and use for another purchase?

That right?

eldaniel

I tell you what I do. I have offset +2.09 over interest rate, so now I have 2.59% for long time already. Every single penny I save I put into ISA's (small difference with %, but still anything over 2.59% is working out better than paying off mortgage) and into regular saver (small payments every month, but big positive difference in %). Any excess which I would not fit into regular saver or ISA would go towards mortgage overpayments.
So in your case, if your interest rate on savings is higher than mortgage %, leave it in your saving account and make sure you tay on top of that, so for example when new ISA year kicks in and you loose your very good % (probably incl. bonus rate for first year) then move it to other ISA which will offer best % at the time.
As far as I know most of offset mortgages are very flexible and you can take back what you overpaid as long as you stick to your mortgage agreement to repay it within X amount of years (or even if not, you can always re-mortgage )
Hope you understand what I mean.

8Sefton

Yes I think I do.... (let's see anyway!!)

Looking at FD offset fixed mortgage for 2.74% (interest only) - with that have a regular saver account which is at 8% - so instead of making any overpayments to reduce the mortgage I may as well put it into the savings account due to the higher interest rate...

That right?

ViolaLass

8Sefton wrote: »

So... First job is to get your interest down so you're not paying anything - then concentrate on getting the mortgage reduced. Then once it is built up to a hefty amount you can pull money out of the mortgage and use for another purchase?

That right?

If you've got your interest payments down to nothing, that means you've offset the full mortgage amount. You wouldn't then need to 'concentrate on getting the mortgage reduced' as you've already got the money for the mortgage sat in the offset account.

8Sefton

ViolaLass wrote: »

If you've got your interest payments down to nothing, that means you've offset the full mortgage amount. You wouldn't then need to 'concentrate on getting the mortgage reduced' as you've already got the money for the mortgage sat in the offset account.

Yes I see that. Confused because when went to see a mortgage advisor at a bank last week she was saying that a capital & interest mortgage was best way to go - build up your savings so you've no interest, then as payments continue, you can move out the equivalent amount from your savings account into a another account. Assume this was her way of me keeping plenty of pennies in her bank!

8Sefton wrote: »

Yes I think I do.... (let's see anyway!!)

Looking at FD offset fixed mortgage for 2.74% (interest only) - with that have a regular saver account which is at 8% - so instead of making any overpayments to reduce the mortgage I may as well put it into the savings account due to the higher interest rate...

That right?

Thinking about this now I assume they wouldn't allow me to have the regular saver account cos to have an offset mortgage you surrender your interest.

eldaniel

Sefton u r wrong. I thought the same, but now i have got exactly that. Offset mortgage and regular saver from the same bank. Best solution at the moment especially with 8% interest. Go ahead then. You can have asmany savings as u like with the same bank. Only current account is connected to your offset I believe. Hope that helps.